General Appraiser Income Approach
Newest Practice Test with 200 Multiple
Choice Questions and Correct Answers
Review / A Practice Test for General
Appraiser Income Approach Test
SECTION I: COMPOUND INTEREST AND FINANCIAL
FUNCTIONS (Questions 1-25)
1. An appraiser is calculating the present value of a future lump sum receipt using
the HP-12C calculator. Which formula represents the periodic discounting of a
single future amount to present value?
A) Future Value = Present Value × (1 + i)ⁿ
B) Present Value = Future Value ÷ (1 + i)ⁿ
C) Present Value = Future Value × (1 + i)ⁿ
D) Future Value = Present Value ÷ (1 + i)ⁿ
Correct Answer: B
Rationale: The formula for present value of a lump sum is PV = FV ÷ (1 + i)ⁿ. This is the
inverse of the future value formula and is used to discount a single future payment to its
present value. The HP-12C uses the "PV" key for this calculation. A is the future value
formula. C incorrectly multiplies instead of divides. D incorrectly uses division for future
value.
,2. An appraiser is using the HP-12C calculator to solve for the monthly payment
on a $100,000 loan amortized over 30 years at 6% annual interest. The correct
sequence of keystrokes is:
A) 30 g n, 6 g i, 100000 PV, PMT
B) 30 n, 6 i, 100000 PV, PMT
C) 30 g n, 6 i, 100000 PV, PMT
D) 360 n, 6 g i, 100000 PV, PMT
Correct Answer: A
Rationale: With HP-12C, monthly payments require using the "g n" function. 30 g n
converts 30 years to 360 months. 6 g i converts 6% annual interest to monthly. 100000
PV enters the loan amount. Then PMT solves for payment. B uses annual periods
incorrectly. D uses 360 n correctly but uses g i incorrectly. The correct sequence is 30 g
n, 6 g i, 100000 PV, PMT.
3. The six financial functions of one on the HP-12C calculator include all of the
following EXCEPT:
A) FV (Future Value of 1)
B) I/Y (Interest Rate Function)
C) PV (Present Value of 1)
D) PMT (Sinking Fund Factor)
Correct Answer: B
Rationale: The six financial functions of one are: Future Value of 1 (FV), Present Value of
1 (PV), Sinking Fund Factor (PMT), Payment to Amortize $1 (PMT), Present Value of
Annuity of 1 (PV), and Future Value of Annuity of 1 (FV). I/Y is not one of the "functions
of one" but rather an input for periodic interest rate. These functions allow solving for
unknown variables in time-value-of-money problems.
4. An appraiser is discounting a series of annual cash flows. The interest rate is 8%
per annum, and the cash flows occur at the end of each year. What is the correct
keystroke sequence to calculate the present value of these cash flows?
,A) 8 i, 5 n, PMT, PV
B) 8 i, 5 n, PMT, 0 FV, PV
C) 8 g i, 5 n, PMT, PV
D) 8 i, 5 g n, PMT, PV
Correct Answer: B
Rationale: To calculate the present value of an annuity, you need to enter 0 FV to
indicate the future value is zero. The sequence "8 i, 5 n, PMT, 0 FV, PV" correctly
calculates PV. On the HP-12C, you do not need to enter a FV of 0 in all cases, but it
prevents errors when the calculator has a previously stored FV value.
5. Which of the following is the correct formula for the Sinking Fund Factor (SFF)?
A) SFF = i ÷ [(1 + i)ⁿ - 1]
B) SFF = i ÷ [(1 + i)ⁿ - 1]
C) SFF = [(1 + i)ⁿ - 1] ÷ i
D) SFF = (1 + i)ⁿ
Correct Answer: B
Rationale: The Sinking Fund Factor calculates the periodic payment required to
accumulate a future sum. Formula B, SFF = i ÷ [(1 + i)ⁿ - 1], is the correct formula. C is
the formula for the future value of an annuity. D is the future value of 1. The sinking
fund factor is sometimes called the "sinking fund payment" on the HP-12C.
6. If an appraiser is using an HP-12C calculator, the indicator "BEGIN" on the
display indicates that:
A) The calculator is at the beginning of the calculation
B) Payments occur at the beginning of each period (annuity due)
C) The calculator has been reset to factory settings
D) The calculator is in statistical mode
Correct Answer: B
, Rationale: The "BEGIN" indicator on the HP-12C display indicates that payments occur
at the beginning of each period, meaning an annuity due. This is activated by pressing
"g BEG". When "BEGIN" is not displayed, payments are at the end of each period
(ordinary annuity). This setting is crucial for correct cash flow timing.
7. An appraiser is solving for the present value of a lease that has monthly
payments of $1,000 for 5 years. The discount rate is 12% annually, compounded
monthly. Which keystroke sequence is correct?
A) 5 n, 12 i, 1000 PMT, PV
B) 5 g n, 12 g i, 1000 PMT, PV
C) 60 n, 12 i, 1000 PMT, PV
D) 5 n, 1 i, 1000 PMT, PV
Correct Answer: B
Rationale: The correct sequence is "5 g n" (converts 5 years to 60 months), "12 g i"
(converts 12% annual to 1% monthly), "1000 PMT", then "PV". The "g n" and "g i"
functions handle the conversion to monthly periods. Option B is correct. C uses the
annual interest rate incorrectly for monthly payments. D uses the monthly rate but not
the correct n conversion.
8. A property is expected to generate $50,000 in Net Operating Income (NOI) in
the first year, with a 3% annual growth rate. Using a 10% discount rate, the
present value of the first year's NOI, assuming it is received at the end of the year,
is:
A) $48,543
B) $46,296
**C) $45,455**
D) $50,000
Correct Answer: C
Rationale: PV = $50,000 ÷ (1.10)¹ = $45,455. This is a straightforward present value
calculation for a single cash flow received at the end of one year. The growth rate is
Newest Practice Test with 200 Multiple
Choice Questions and Correct Answers
Review / A Practice Test for General
Appraiser Income Approach Test
SECTION I: COMPOUND INTEREST AND FINANCIAL
FUNCTIONS (Questions 1-25)
1. An appraiser is calculating the present value of a future lump sum receipt using
the HP-12C calculator. Which formula represents the periodic discounting of a
single future amount to present value?
A) Future Value = Present Value × (1 + i)ⁿ
B) Present Value = Future Value ÷ (1 + i)ⁿ
C) Present Value = Future Value × (1 + i)ⁿ
D) Future Value = Present Value ÷ (1 + i)ⁿ
Correct Answer: B
Rationale: The formula for present value of a lump sum is PV = FV ÷ (1 + i)ⁿ. This is the
inverse of the future value formula and is used to discount a single future payment to its
present value. The HP-12C uses the "PV" key for this calculation. A is the future value
formula. C incorrectly multiplies instead of divides. D incorrectly uses division for future
value.
,2. An appraiser is using the HP-12C calculator to solve for the monthly payment
on a $100,000 loan amortized over 30 years at 6% annual interest. The correct
sequence of keystrokes is:
A) 30 g n, 6 g i, 100000 PV, PMT
B) 30 n, 6 i, 100000 PV, PMT
C) 30 g n, 6 i, 100000 PV, PMT
D) 360 n, 6 g i, 100000 PV, PMT
Correct Answer: A
Rationale: With HP-12C, monthly payments require using the "g n" function. 30 g n
converts 30 years to 360 months. 6 g i converts 6% annual interest to monthly. 100000
PV enters the loan amount. Then PMT solves for payment. B uses annual periods
incorrectly. D uses 360 n correctly but uses g i incorrectly. The correct sequence is 30 g
n, 6 g i, 100000 PV, PMT.
3. The six financial functions of one on the HP-12C calculator include all of the
following EXCEPT:
A) FV (Future Value of 1)
B) I/Y (Interest Rate Function)
C) PV (Present Value of 1)
D) PMT (Sinking Fund Factor)
Correct Answer: B
Rationale: The six financial functions of one are: Future Value of 1 (FV), Present Value of
1 (PV), Sinking Fund Factor (PMT), Payment to Amortize $1 (PMT), Present Value of
Annuity of 1 (PV), and Future Value of Annuity of 1 (FV). I/Y is not one of the "functions
of one" but rather an input for periodic interest rate. These functions allow solving for
unknown variables in time-value-of-money problems.
4. An appraiser is discounting a series of annual cash flows. The interest rate is 8%
per annum, and the cash flows occur at the end of each year. What is the correct
keystroke sequence to calculate the present value of these cash flows?
,A) 8 i, 5 n, PMT, PV
B) 8 i, 5 n, PMT, 0 FV, PV
C) 8 g i, 5 n, PMT, PV
D) 8 i, 5 g n, PMT, PV
Correct Answer: B
Rationale: To calculate the present value of an annuity, you need to enter 0 FV to
indicate the future value is zero. The sequence "8 i, 5 n, PMT, 0 FV, PV" correctly
calculates PV. On the HP-12C, you do not need to enter a FV of 0 in all cases, but it
prevents errors when the calculator has a previously stored FV value.
5. Which of the following is the correct formula for the Sinking Fund Factor (SFF)?
A) SFF = i ÷ [(1 + i)ⁿ - 1]
B) SFF = i ÷ [(1 + i)ⁿ - 1]
C) SFF = [(1 + i)ⁿ - 1] ÷ i
D) SFF = (1 + i)ⁿ
Correct Answer: B
Rationale: The Sinking Fund Factor calculates the periodic payment required to
accumulate a future sum. Formula B, SFF = i ÷ [(1 + i)ⁿ - 1], is the correct formula. C is
the formula for the future value of an annuity. D is the future value of 1. The sinking
fund factor is sometimes called the "sinking fund payment" on the HP-12C.
6. If an appraiser is using an HP-12C calculator, the indicator "BEGIN" on the
display indicates that:
A) The calculator is at the beginning of the calculation
B) Payments occur at the beginning of each period (annuity due)
C) The calculator has been reset to factory settings
D) The calculator is in statistical mode
Correct Answer: B
, Rationale: The "BEGIN" indicator on the HP-12C display indicates that payments occur
at the beginning of each period, meaning an annuity due. This is activated by pressing
"g BEG". When "BEGIN" is not displayed, payments are at the end of each period
(ordinary annuity). This setting is crucial for correct cash flow timing.
7. An appraiser is solving for the present value of a lease that has monthly
payments of $1,000 for 5 years. The discount rate is 12% annually, compounded
monthly. Which keystroke sequence is correct?
A) 5 n, 12 i, 1000 PMT, PV
B) 5 g n, 12 g i, 1000 PMT, PV
C) 60 n, 12 i, 1000 PMT, PV
D) 5 n, 1 i, 1000 PMT, PV
Correct Answer: B
Rationale: The correct sequence is "5 g n" (converts 5 years to 60 months), "12 g i"
(converts 12% annual to 1% monthly), "1000 PMT", then "PV". The "g n" and "g i"
functions handle the conversion to monthly periods. Option B is correct. C uses the
annual interest rate incorrectly for monthly payments. D uses the monthly rate but not
the correct n conversion.
8. A property is expected to generate $50,000 in Net Operating Income (NOI) in
the first year, with a 3% annual growth rate. Using a 10% discount rate, the
present value of the first year's NOI, assuming it is received at the end of the year,
is:
A) $48,543
B) $46,296
**C) $45,455**
D) $50,000
Correct Answer: C
Rationale: PV = $50,000 ÷ (1.10)¹ = $45,455. This is a straightforward present value
calculation for a single cash flow received at the end of one year. The growth rate is
